Lloyds to Sell Loans to Cerberus Capital for $501 Million

By Jesse Westbrook -
May 10, 2013

Lloyds Banking Group Plc agreed to
sell a portfolio of U.K. real estate loans to Cerberus Capital
Management LP for 325 million pounds ($501 million) as the U.K.
lender shrinks its balance sheet after its government bailout.

The loans have a face value of 527 million pounds and
produced losses last year of 47 million pounds for Lloyds, the
London-based bank said in a statement today. The bank said it
had already made “significant impairment provisions” on the
loans, so the effect of the sale won’t be material.

Lloyds Chief Executive Officer Antonio Horta-Osorio is
seeking to strengthen the bank’s balance sheet by selling assets
and cutting costs after receiving a 20 billion-pound bailout
during the financial crisis of 2008. The loans were sold to
Cerberus at 61 percent of face value, within about 2 percent of
their estimated book value, according to Jason Napier, an
analyst at Deutsche Bank AG in London.

“This is a very strong environment for non-core asset
rationalization,” Napier, who has a buy rating on Lloyds, wrote
in a report to clients today. The bank “will continue to beat
its targets in non-core deleveraging and capital release.”

The stock was up 0.8 percent at 58.55 pence at 12:10 p.m..
in London trading, the highest in two years. Lloyds said it
expects to complete the sale to the New York-based investment
firm by the year-end.

The bank, which is 39 percent owned by the British state,
agreed last month to sell its money-losing Spanish consumer-banking operations to Banco Sabadell SA at a loss of about 250
million pounds.

Lloyds said today that sale will allow it to repay the full
13.5 billion euros ($18 billion) it borrowed through the
European Central Bank’s Long-Term Refinancing Operation by May
15. The bank paid off 10 billion euros of the loan in February
and will redeem the final 3.5 billion euros following the sale
of the Spanish unit.